An article on Bloomberg by John Wasik is the latest to pick on some of the newer and narrower ETFs.
There are some points made that seem to recur on financial websites over and over that I believe miss the mark and this article is no exception.
Right out of the blocks Mr. Wasik draws a parallel with increased ETF issuance today and dot com IPO mania from the Internet days.
The Internet bubble produced countless $50 billion, $100 billion and larger companies. The article picks on the HealthShares ETFs (don't most articles pick on these funds?) as being emblematic of this effect but at this point I would be shocked if the entire HealthShares line even had $100 million in assets (I have a call into HealthShares to find out).
In picking on HealthShares the article asks if you really want to invest in endocrine disorders, climate changes or US livestock futures among others. This line of questioning misses the point. Most investors will not need these funds which has nothing to do with whether they should exist or not. The market will decide whether these funds make it not someone's arbitrary concept of what we need.
The regard for do-it-yourselfers is noble but people who view the market as a casino will always find something to bet on, if not ETFs then something else; this is a fairly obvious point. And for investors that really don't know any better a the narrower you get with an investment the more risk you take.
Personally I don't have an interest in most of the new products that come but I owe it to my clients to at least give them a quick once over because some of them are better mousetraps.
On a personal note I have wanted to use a picture of Skeletor for ages; we may see more of him on future posts.
9 comments:
Roger, Can you shed some light on the correlatin of MDY and IWM? My software yields a surprisnly low number: .69. Supposably, data hx goes back to inception of both etfs and will not distort if only one etf has data. I have my doubts.
Well PortfolioScience.com site is telling me I am not authorized so I can't log in and check there but I know that Fisher Investments studied this at one point and came up with a correlation somewhere around 90% or so.
I'm not sure what you are using but if you look at a chart you will see you are right to doubt the 0.69 number.
I didn't know who S was. Thank goodness for Wikipedia! I've added my own annotations in [ ]
"Skeletor is a fictional character in the toy, cartoon and comic book series Masters of the Universe ("MOTU"), where he is the arch-enemy of He-Man [H. Paulson], and the main antagonist of MOTU [Ben Bernanke]. He is the greatest threat to present day Eternia [Bull market]. He seeks to conquer Castle Grayskull [PPT] so he can learn all of Eternia's )[PPT's]ancient secrets which would make him unstoppable, and which would enable him to conquer and rule all of Eterniam [financial markets].
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Yes, some days I have too much time on my hands.
Leisa,
I thought I was having a slow day; this is brilliant stuff. I am hysterics.
Roger, I'm waiting for the ETF that contains "stocks that only go up." It would rebalance daily by eliminating the stocks that are going to go down tomorrow, and by adding those that are going to go up.
Can you ping me when this ETF hits the market? Thanks in advance...
;)
Oh, and also notify me when profunds offers a double-beta of above ETF...
I think there is one on the works. I think the back test compounds at 150% per year.
Roger, I have to throw out the work i've done on correlations. I should have looked at a comparison chart to begin with. If you were going to narrow down the cap/style matrix down from its 9 cells, which ones would you choose...and it would be ok to use russell 3000 value or russell 3000 growth? My goal is a short list of asset classes for these broad indices.
to 2:01pm anon,
I don't think I follow all of your question.
first, I don't really care for or use style boxes in constructing the portfolio. I think of the entire portfolio; decide if i want to tilt more or less to growth or value and whether I want to make the cap size larger or smaller. Once I work that out I then try to figure the best way to do it.
As far as Russell 3000 growth/value; its your portfolio you can use whatever you want but I have to say I don;t know what you are using them for. Benchmarking against? I'm sorry but that part of the question loses me.
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